When meeting with a financial planner for the first time, many people are hesitant to ask questions because they don't want to sound “dumb”. But dumb is not asking any questions at all.
Ultimately, you have the opportunity (and responsibility) to interview the planner to see if he is the right person to manage your investments. Before you decide if a particular financial planner is right for you, you should ask him some basic questions.
What will I find on your U4?
Remember when you were younger and you could always hide your grades from your parents? That was until the report card was sent home. The U4 is the “report card” of your financial planner's background. That means if he's done anything wrong and a complaint has been filed against him, it will be shown here.
By asking the financial planner if there's anything on his U4, you're finding out if he's committed any wrong-doing. The best part is that if you don't believe the financial planner's answer, you can always log on to finra.org to find out if the financial planner is telling you the truth.
How much do you charge?
You would think that this would be a common question. But many folks feel that it's impolite to ask how much a financial planner charges. If you were getting your car worked on, wouldn't you ask the mechanic how much it was going to cost? Don't be shy in asking this question.
There are many different ways that financial planners make money. They may be commission-based, fee-only, fee-based — or a combination of the three. Asking what the planner charges will help you know exactly what you are paying throughout the working relationship. If she explains but it still doesn't quite make sense, have her put it on paper so that it's crystal clear.
Those are the two basic questions. Here are some more in-depth questions you could ask:
How many clients do you have?
Here's a quick story to help drive this point home.
At my old firm, an elderly gentleman walked into the office to drop off a check. As the elderly man waited, he struck up a conversation with one of the advisors in the office. They were from the same hometown.
After the man left, the branch manager — also from the same hometown — approached the advisor and asked, “How do I know that guy?”
“Well”, the advisor said, “that guy is from our hometown, and he's actually your client”.
The branch manager had more clients then he knew what to do with. So many, in fact, that he didn't even recognize one who had walked into the office. This is a prime example of how many advisors take on more than they can handle. Asking your planner how many clients they have will help you understand how much you will be serviced going forward. Do you want to be treated as a person or just a number?
What do you drive?
This is a good question to ask for many reasons.
For one, if you have an issue with working with somebody that drives an exotic foreign car, then maybe this planner doesn't have the same values that you have. Also, if you're “green” conscious and want to do green investing and your financial planner drives a large SUV, then maybe you both won't see eye-to-eye.
Asking what she drives will help understand whether you and the advisor share core values that will enable you to work together successfully over the years to come.
Have you ever been fired?
Ask your planner if he's ever been fired by a client. In our industry, it's actually very common to start a relationship with a client but then have things things not work out. Sometimes it could be the planner's lack of service. Other times it could just be a clash of personalities. Nonetheless, the planner should be very open if he has been fired before.
If the advisor is able to share a few stories, it will help you to understand why a client would have gone elsewhere. It's an uncomfortable question, and seeing how an advisor responds should give you an indication of the character of the planner.
What's in your portfolio?
If the planner is describing her investment strategy as implementing proper asset allocation and diversification, yet when you look at her portfolio it contains only technology stocks, will you really want to follow her advice? Shouldn't she practice what she preaches?
If the financial planner is willing to show you some of the holdings in her portfolio, it might help you to believe in her investment strategy. Would you trust somebody selling Goodyear tires if she had Bridgestone on her car? Exactly.
Are you married?
You need to really know your financial planner. Face it: When you meet with a planner, they get insight into your entire life history. Isn't it fair to get insight into his life, too? If your planner has (or had) a rocky home life, then maybe he has too many things going on in his personal life to truly service you and your needs going forward.
Does that mean a planner has to be married to be able to take care of you? Of course not. I used to work with a planner who was having marital problems and it strongly affected his business. He wasn't able to focus on his clients, and because of that he eventually got out of the business. You just want to make sure that a planner can focus on your needs.
How long do you plan to be in the business?
If you search for a financial planner and find one that fits your needs, what happens when she retires? Does she have a sufficient exit strategy plan in place? Maybe a younger advisor that is going to fill her shoes. If so, does that younger financial advisor fit the criteria that you used to hire the first advisor?
Getting a sense of how long your new-found planner will be in the business, and what her plans are after she leaves, may help put you at ease knowing that you made the right decision for years to come.
Have you met with a financial planner? If so, what did you ask before hiring her? Are there other questions you wish you would have asked? Share your thoughts. (And once you've found an advisor that works for you, check out my article about questions to ask your financial planner about your situation.)
Jeff Rose is an Illinois Certified Financial Planner and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.